Bollinger Bands (BOLL)

What is a Bollinger Band?

The Bollinger bands were developed and copyrighted by the famous technical trader John Bollinger, designed to discover opportunities that give investors a higher probability of properly identifying when an asset is oversold or overbought. Bollinger Bands help determine whether prices are high or low on a relative basis. They are used in pairs, including upper and lower bands, and in conjunction with a moving average.

Bollinger Bands trading strategies

  • Breakouts

Breakouts occur after a period of consolidation when the price closes outside of the Bollinger Bands. The highs and lows of consolidation may be marked with trend lines. A price move above the high of the consolidation would be considered an upside breakout, while a price close below the low of the consolidation would be considered a downside breakout.

  • Bollinger Bands showing a strong trend

A strong trend continuation can be expected when the price moves out of the bands. However, if prices move immediately back inside the band, then the suggested strength is negated.

  • Price swings

Prices tend to bounce within the bands' envelope, touching one band then moving to the other band. Investors can use these swings to help identify potential profit targets. For example, if a price bounces off the lower band and then crosses above the moving average, the upper band then becomes the profit target.

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